Exhibit 10.11


 


INDUSTRIAL
WATER SUPPLY TREATMENT AGREEMENT


 


THIS INDUSTRIAL WATER
SUPPLY TREATMENT AGREEMENT (the “Agreement”) is made this 23rd day of May,
2006, by and among the CITY OF HERON LAKE, MINNESOTA, a Minnesota municipal
corporation (the “City”), the COUNTY OF JACKSON, MINNESOTA, a Minnesota
municipal corporation (the “County”), and HERON LAKE BIOENERGY, LLC, a
Minnesota limited liability company (the “Company”).


 


W I
T N E S S E T H,


 


WHEREAS, the
Company is developing an ethanol production facility in the City of Heron Lake,
Minnesota (the “Project”); and


 


WHEREAS, the
Project will require a supply of untreated industrial water, which the City has
agreed to supply upon the terms and conditions set forth in that certain
Industrial Water Supply Development and Distribution Agreement dated as of October 27,
2003, by and among the City, County, Company (as successor to Generation II
Ethanol, LLC) and Minnesota Soybean Processors (“MNSP”) (the “2003 Agreement”);
and


 


WHEREAS, such
untreated water will need to be treated prior to its use in the Project, as
contemplated by Section 7 of the 2003 Agreement; and


 


WHEREAS, the
City has agreed to construct, finance and operate a water treatment plant (the “Water
Treatment Plant”) to supply treated industrial water to the Project, all as
hereinafter provided; and


 


WHEREAS, the
City has procured two grants, each in the amount of $500,000, from the State of
Minnesota for the Water Treatment Plant; and


 


WHEREAS, in
order to facilitate the Company’s desired timetable for operation of the
Project, the City commenced construction of the Water Treatment Plant pursuant
to the terms and conditions of that certain Repayment Agreement dated as of April 24,
2006, by and among the City, County and Company (the “Repayment Agreement”):


 


NOW, THEREFORE,
the City, County, and Company hereby agree as follows:


 


1.             Definitions.


 


1.1           Joint Powers
Agreement: That
certain Joint Powers Agreement between the City and County dated as of May 23,
2006, pursuant to which the Bonds (as hereinafter defined) shall be issued,
defining the respective obligations of the City and County with respect to the
ownership and operation of the Water Treatment Plant.


 


1.2           Water
Treatment Plant:
a water treatment plant, and associated facilities, to treat water from the
Well Facilities for the Company’s use at the Project, including pumps and
pumping stations, metering, valves, controls, and other equipment, electrical
installations, fencing and security devices, pipes and piping, and all other
personal property, equipment and fixtures in connection therewith.  The 


 

















 


Water Treatment Plant is further identified
by materials to be attached hereto as Exhibit “E”.


 


1.3           Bonds: An issue of taxable general
obligation water revenue bonds, issued by the County pursuant to the Joint
Powers Agreement, in the principal amount of $3,550,000 (including, to the
extent determined by the County, any refunding bonds), to be used to finance
Water Treatment Plant Development Costs. 
The Joint Powers Agreement provides, among other things, for the “guarantee”
of payment of principal and interest on the bonds by the County by the County’s
levy of ad valorem taxes, for the disbursement of proceeds thereof, for the
collection of debt service thereon from the Assessments and from other payments
by the Company to the City, and for the deposit into a debt service reserve of
one year’s debt service by the Company (to be returned to the Company upon
final payment of the Bonds).  The County
shall cumulate interest earnings on the debt service reserve in the debt
service reserve, and all amounts remaining in the debt service reserve shall be
returned to the Company upon final payment of the Bonds.  A preliminary breakdown of the proposed use
of the proceeds of such bond issue and tentative repayment schedule is attached
hereto as Exhibit “C”.


 


1.4           Water
Treatment Plant Development Costs: All costs incurred by the City and County to design,
construct, test and render operational the Water Treatment Plant including,
without limitation, costs to acquire temporary or permanent easements or
similar rights of way, the cost of acquisition of the site, engineering studies
and investigations, design costs, feasibility costs, environmental costs, costs
of complying with all applicable laws, rules and regulations, permits and
licenses (including the cost of complying with any conditions attached to such
permits and licenses), all costs of contractors and subcontractors for labor
and materials, fees of consultants, insurance premiums, as well as bond underwriters’
fees or discounts, all other costs of bond issuance, including bond counsel
fees, fees of counsel to the City and County. 
Attached as Exhibit “D”
is a cost pro forma for Water Treatment Plant Development Costs with sources
and uses.


 


1.5           Water Treatment
Plant Operating Costs:
All costs of maintenance, repair and replacement of the Water Treatment Plant,
and all components thereof, including reasonable reserves for the repair or
replacement of items of personal property, fixtures or equipment that must be
repaired or replaced on a periodic basis, all costs of complying with all now
existing or hereafter enacted laws, rules and regulations and all costs of
complying with all new or hereafter required permits and licenses (including
the cost of complying with any conditions attached to such permits and
licenses), but excluding debt service on the Bonds and depreciation.  Water Treatment Plant Operating Costs shall
include a $1,500 per month addition as an administrative fee to the City.


 


1.6           Water Treatment
Plant Property:
A parcel of approximately 3.62 acres, preliminarily depicted on Exhibit “A” attached hereto, which
real property is the site of the Water Treatment Plant.


 


2

















 


1.7           Well
Facilities: As
provided in the 2003 Agreement, water wells and associated facilities,
including pumps and pumping stations, metering, valves, controls, and other
equipment, electrical installations, fencing and security devices, pipes and
piping, and all other personal property, equipment and fixtures or other
improvements constructed or to be constructed on the Well Property as part of
the water well system developed by the City.


 


1.8           Well Property: As provided in the 2003
Agreement, a parcel of approximately four (4) acres, preliminarily
depicted on Exhibit “B”
attached hereto, which real property is the site of the Well Facilities.


 


1.9           Grants: The $500,000 grant set forth
in the “General Obligation Bond Proceeds Grant Agreement Construction Grant for
the Heron Lake Public Infrastructure Project” by and between the City and
Minnesota Department of Employment and Economic Development (“DEED”), and the
$500,000 grant from DEED from the Small Cities Development Program.


 


1.10         Assessments: Special assessments for the
capital costs of the Water Treatment Plant, other than those costs paid by the
Grants, to be levied by the City pursuant to Minnesota Statutes, Chapter 429,
against the Project and paid over by the City to the County for use in paying
the Bonds as provided in the Joint Powers Agreement.


 


2.             County Issuance of Bonds; City
Acquisition of Water Treatment Plant Property.


 


2.1           Not more than thirty (30) days
after the date hereof, the County shall use its best efforts to issue its
Bonds, having such interest rate, maturity and other provisions as the County,
in its discretion, shall deem appropriate. 
The Bonds shall be an aggregate principal amount that provides proceeds
in the amount shown on the pro forma set forth as Exhibit “D”.


 


2.2           The Company is acquiring property
that includes the Water Treatment Plant Property from third parties.  Not more than forty-five (45) days after the
date hereof, the City shall use its best efforts to acquire fee title to the
Water Treatment Plant Property from the Company at a price of $310,000, which
amount shall be included in Water Treatment Plant Development Costs.


 


3.             Design, Construction by the City
of Water Treatment Plant.


 


3.1           Engineers retained by the City
have designed the Water Treatment Plant, and the design has been reviewed by
U.S. Water, Inc. (a party employed by and paid by the Company to assure
the compatibility with the Project of the overall design and output of the
Water Treatment Plant).  The parties
acknowledge that it is their intent to cause the Water Treatment Plant to have
a peak initial capacity of not less than 1400 gallons per minutes (gpm).  The Company shall cooperate fully in the City’s
efforts to obtain all necessary licenses, permits, governmental approvals and
consents for the construction of the Water Treatment Plant.


 


3

















 


3.2           Promptly upon acquisition of
title to the Water Treatment Plant Property, the City shall commence and
diligently pursue construction of the Water Treatment Plant.  The City and its contractors shall allow
access to the work to the Company and its engineers, who shall actively monitor
construction of the Water Treatment Plant in order to determine that the Water
Treatment Plant is being constructed in accordance with the applicable construction
contract and in accordance with all laws, rules, regulations, licenses and
permits.  Additionally, the Company and
its engineers shall attend preconstruction and construction progress meetings.


 


3.3           The City shall use commercially
reasonable efforts to complete, test, and obtain approval by governmental
agencies having jurisdiction by January 15,2007 (“Initial Completion Date”),
except that such Initial Completion Date shall be extended by events of Force
Majeure (as described in Section 17 hereof).


 


3.4           To the extent that any Water
Treatment Plant Development Costs are not eligible for funding from the
proceeds of the Bonds or Grants, or in the event that the available proceeds
from the Bonds and Grants are insufficient to pay all Water Treatment Plant
Development Costs, the Company shall, upon written notice from the City,
promptly pay such amounts to or as directed by the City.  The Company acknowledges and agrees that the
conditions in the Grants can be met.


 


3.5           If the Water Treatment Plant as
designed and constructed does not produce water with the specifications
necessary for the Company’s use, the Company shall have no damage remedy
against the City or County or both, but the Company shall be subrogated to the
rights of the City with respect to engineers, suppliers and contractors.


 


3.6           If the Water Treatment Plant
does not, when operated as designed, produce water with the specifications
necessary for the Company’s use, the Company shall be responsible for the
capital costs and operational costs of any additional treatment.  The Company, City and County shall cooperate
in identifying and providing (at the Company’s expense) the capital facilities
for such additional treatment, and in coordinating or integrating such
additional treatment with or into the operations of the Water Treatment
Plant.  This provision shall not
prejudice the Company’s right to pursue remedies against third parties pursuant
to its subrogation rights set forth in Section 16.3.


 


4.             Operation of Water Treatment
Plant; Capacity Priorities of the Company and Others; Payments by the Company
and Others.


 


4.1           The City (together with the
County) shall own and operate the Water Treatment Plant, which shall remain
separate from the existing potable water well and water supply, treatment and
distribution system of the City.  During
the term of this Agreement, no connection of the Water Treatment Plant to the
City’s present or future potable water supply system shall be made without the
prior written consent of the Company.


 


4

















 


4.2           The availability of water from
the Well Facilities is governed by the 2003 Agreement.  The capacity of the Well Facilities is
currently estimated by the City and Company to be 1800 gpm, but a permit for
that volume has not yet been procured. 
Under the 2003 Agreement, the first 600 gpm of capacity of the Well
Facilities has been reserved for the Company, and MNSP has the exclusive right
to the next 600 gpm of capacity. 
Pursuant to this Agreement, the next capacity of the Well Facilities
over 1200 gpm and up to 1800 gpm is reserved for the Company.  Subject to Section 3.1 above, the
Company shall have the right to the first 900 gpm of capacity available from
the Water Treatment Plant initially, and the first 1200 gpm of capacity if the
Company shall expand the capacity of the Project.  With the prior written consent of the
Company, others shall have the potential to use the remainder of available
capacity.  The City may develop and sell
any unused or surplus capacity without restrictions other than the following:


 


4.2.1        Any supply contract with a third
party shall be made on a secondary and interruptible basis, such that should
the City be unable to meet the capacity requirements of the Company defined
above, any water sales to secondary users must cease until sufficient excess
capacity has been restored; and


 


4.2.2        During the term of this
Agreement, the City shall not enter into supply contracts to potable water
users, including Red Rock Rural Water or the Cities of Okabena and Brewster, or
other cities, without first securing the written approval of the Company, which
approval may be withheld or conditioned in its discretion.


 


All amounts received the
by the City from sale of such unused or excess capacity may be used by the City
without restriction.


 


4.3           Debt service on the Bonds shall
be paid from the Assessments and other net revenues of the Water Treatment
Plant.  The Company acknowledges and
agrees that the market value of its property, including the Project, will
increase by an amount at least equal to the entire cost of the Water Treatment
Plant.


 


4.4           All Water Treatment Plant
Operating Costs shall be borne by the Company in each calendar year.


 


4.5           During the term of this
Agreement, the Company shall purchase all of its treated water supply
exclusively from the City, and shall refrain from developing alternate water
sources or purchasing water from any other party, except in the situation that
the Water Treatment Plant is not capable, or ceases to be capable, of producing
water in the volumes contemplated by this Agreement.


 


4.6           The Water Treatment Plant may
not be capable, or may cease to be capable, of producing treated water in the
volumes contemplated by this Agreement. 
The City and County shall have no duty or responsibility to arrange to
supply water 


 


5

















 


which will be treated at the Water Treatment
Plant from any source other than the Well Facilities and Well Property.


 


5.             Design and Construction of Water
Treatment Plant~ City and County Ownership~ Payments by the Company.


 


5.1           The Company shall cooperate
fully in the City’s efforts to obtain all necessary licenses, permits,
governmental approvals and consents for the construction of the Water Treatment
Plant, including any necessary easements or permits from landowners or
governmental units, including the County.


 


5.2           Intentionally Omitted.


 


5.3           The parties acknowledge that
construction of the Water Treatment Plant has commenced, and construction and
final testing of the Water Treatment Plant shall be diligently pursued and the
City shall use commercially reasonable efforts to complete the Water Treatment
Plant by January 15,2007, except that such completion date shall be
extended by events of Force Majeure.  To
the extent that any Water Treatment Plant Development Costs are not eligible
for funding from the proceeds of the Bonds or Grants, or in the event that the
available proceeds from the Bonds and Grants are insufficient to pay all Water
Treatment Plant Development Costs, the Company shall, upon written notice from
the City, promptly pay such amounts to or as directed by the City.


 


5.4           During the term of this
Agreement, the Water Treatment Plant shall remain physically separate from, and
shall not be connected to, the existing potable water well, water treatment and
distribution system of the City.  The
Company shall make the following payments regardless of actual treated water
use:


 


5.4.1       Payments of the Assessments as
part of the Company’s payment of its ad valorem real estate taxes.


 


5.4.2       All Water Treatment Plant
Operating Costs, monthly or more frequently as and when required.


 


5.4.3       Monthly in equal installments
over 24 months, commencing January 15, 2007, the Company shall pay to the
County an amount which aggregates to one (1) year’s debt service on the
Bonds, which shall be returned to the Company if and to the extent it remains
after final payment in full of the Bonds, on the condition that the Company has
made all payments required of it under this Agreement.


 


5.4.4       Upon demand of the City for
extraordinary maintenance expenses of the Water Treatment Plant, the Company
shall pay the amount of such extraordinary maintenance expenses.


 


5.5           Under the Joint Powers
Agreement, the City and County will co-own the Water Treatment Plant.


 


6

















 


5.6           Intentionally Omitted.


 


5.7           If this Agreement has terminated
and not been replaced as contemplated by Section 20.1, the Company shall
have the option to purchase the Water Treatment Plant from the City and County
for its fair market value at the time, if such sale is approved by the State of
Minnesota if such approval is required by law at the time.  The parties hereto recognize that if the
state bonds which financed one of the Grants are outstanding at the time of
such purchase by the Company, state law provides a procedure for, and
conditions on, the sale of the Water Treatment Plant, and payments related to
the sale of the Water Treatment Plant may need to be made by the City to the
State of Minnesota.


 


6.             Intentionally Omitted.


 


7.             Other Obligations.  Nothing herein shall affect any other
obligations of the parties hereto, and the development of the Water Treatment
Plant shall not impact any obligations of the parties under any previous
financing or otherwise, including the 2003 Agreement.  There has been no conversion of the entire
water system from untreated to treated water by mutual agreement of all parties
to the 2003 Agreement.


 


8.             City to Furnish Cost Data~ Audit
Rights of the Company.


 


8.1           The City shall furnish the
Company, not less often than annually, detailed accounting records detailing
the Water Treatment Plant Operating Costs and the administrative fees required
by this Agreement.


 


8.2           The Company may, at its expense,
cause an audit of records related to Water Treatment Plant Operating Costs,
administrative fees, or any other costs borne by the Company hereunder, such
audit to be performed by an independent certified public accountant, and in a
manner that is not disruptive to ordinary operations of the City.  A copy of any report of such auditor shall be
furnished to the City.


 


9.             Default, Cure and Early
Termination.


 


9.1           If any party fails to comply
with any of the provisions of this Agreement, any other party may provide
notice of default by sending written notice of default to the defaulting party,
with a copy to all other parties.  The
notice of default shall begin a 90-day cure period.  If the defaulting party fails to cure the
default before the expiration of the cure period, any or all of the
non-defaulting parties may commence an action against the defaulting party to
recover damages suffered or incurred (subject, however, to the limitations
contained in Section 16 hereof) or to compel the defaulting party’s
performance of this Agreement in an appropriate equitable proceeding.  Subject to the provisions of Section 9.2
hereof, no party to this Agreement shall have the right to terminate this
Agreement on account of the default by any other party.


 


9.2           Without limiting any other right
or remedy hereunder, in the event of a default by the Company under this
Agreement, the City or County may terminate or suspend 


 


7

















 


water service to such defaulting party (and sell
such water as excess or unused water) unless and until such default is cured to
the reasonable satisfaction of the City or County.


 


10.           No Mortgage or Security Interest
to the City and County.  The Company shall not provide the City and
County a mortgage or security interest in the Project.  The Assessments are enforceable by a
statutory tax lien.


 


11.           Representations and Warranties.  The Company represents and warrants to the
City and County that: this Agreement has been duly and validly authorized and
executed by it; this Agreement does not violate any provision of its articles,
bylaws, or any other document, instrument or agreement applicable to it or its
property; and this Agreement is fully enforceable against it in accordance with
its terms.


 


12.           Acknowledgments.  The Company acknowledges and agrees that the
City and County have made no representations or warranties of any type or kind:
(a) that the Water Treatment Plant can be constructed in accordance with
applicable laws, rules, regulations, licenses and permits; (b) that the
contracts for construction, and the applicable contractors, are sufficient and
capable to construct the Water Treatment Plant to meet the needs of the
Company; (c) with respect to costs of construction, operation, maintenance
and replacement of the Water Treatment Plant; or (d) that the Water
Treatment Plant, or the quantity or quality of treated water available by
operation thereof, will meet the needs of the Project, or will be available at
any particular date.


 


13.           Resolutions and Opinions.  Concurrently with the execution of this
Agreement, the Company will provide the City and County with resolutions of its
governing body authorizing and approving the execution of this Agreement, and a
legal opinion of outside legal counsel opining to such matters as the City and
County and their legal counsel shall require.


 


14.           Unconditional Payments.  The payment obligations of the Company
hereunder are absolute and unconditional, and shall not be affected, excused or
delayed for any reason whatsoever including, but not limited to: (a) negligence,
failure or omission by the City, the County or any of their respective
employees or representatives; (b) any default or other failure of the
applicable contractor to complete construction of the Water Treatment Plant in
a timely manner or in accordance with the requirements of the applicable
construction contract or applicable laws, rules, regulations, licenses or
permits; (c) any default or other failure of the Company to make any
payments or take any actions required by this Agreement; or (d) the amount
of water capable of being treated by the Water Treatment Plant.


 


15.           Modification; Interest; Attorney’s
Fees.  This Agreement can only be modified or
amended, or any provision waived, by written instrument duly executed by all
parties.  Any amounts not paid when due
shall bear interest at the rate of eight percent (8%) per annum until
paid.  In the event that any party is
required to commence legal action to enforce its rights under this Agreement,
and in the event that it is the prevailing party in 


 


8

















 


such action, it shall be entitled to recover
its reasonable costs and expenses (including legal fees).


 


16.           Limitation of Liability.


 


16.1         IN NO EVENT SHALL THE CITY OR
COUNTY BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL, OR INDIRECT DAMAGES OF
ANY TYPE OR KIND, REGARDLESS OF WHETHER THEY HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.


 


16.2         THE COMPANY AGREES THAT THE CITY
AND COUNTY’S COLLECTIVE LIABILITY HEREUNDER FOR DAMAGES, REGARDLESS OF THE FORM OF
ACTION OR THEORY OF RECOVERY, SHALL NOT EXCEED THE WATER TREATMENT PLANT
OPERATING COST PAYMENTS MADE BY THE COMPANY HEREUNDER IN THE PRECEDING TWELVE
(12) MONTH PERIOD.


 


16.3         The Company shall be subrogated
to the rights of the City and County with respect to claims arising out of the
design, engineering, construction and acquisition of the Water Treatment Plant.


 


17.           Force Majeure.


 


17.1         Any delay of any party to
perform its obligations hereunder shall be excused if, and to the extent that,
it is caused by an event or occurrence beyond the reasonable control of the
party and without its fault or negligence, such as by way of example and not by
way of limitation, acts of God, actions by any governmental authority (whether
valid or invalid), failure to obtain necessary licenses or permits, fires,
floods, windstorms, explosions, riots, natural disasters, wars, sabotage, acts
of terrorism, material shortages, or court injunction or order.  No such event or occurrence shall excuse or
delay any obligation to pay amounts due under this Agreement.


 


17.2         During the period of such delay
or failure to perform by a party, such party shall provide all other parties
with prompt written notice of such delay (including a description of the cause
of the event or circumstance, an estimate of the duration of the delay and a
statement regarding the remedial steps that are being undertaken to resume
performance.)


 


18.           Assignment.  This Agreement or any part of this Agreement
may not be assigned or transferred by any party without the prior written
consent of all other parties hereto.  Any
assignment or transfer without such consent shall be null and void.


 


19.           Notices and Demands.


 


19.1         Except as otherwise expressly
provided in this Agreement, any notice, demand or other communication under
this Agreement by any party shall be sufficiently 


 


9

















 


given or delivered if dispatched by
registered or certified mail, postage prepaid, return receipt requested, or
delivered personally as follows:


 


If to the Company:


 


Heron Lake BioEnergy, LLC

201 Tenth St.

Heron Lake MN 56137


 


If to the City:


 


City of Heron Lake

P.O. Box 315, 312 10th Street

Heron Lake MN 56137-0315


 


If to the County:


 


County of Jackson,
Minnesota

Attn: Janice Fransen, County Coordinator

County Attorney, Jackson County

Jackson County Courthouse

405 4th Street

Jackson MN 56143-1588


 


or at such other address
with respect to any party as such party may, from time to time, designate in
writing.


 


20.           Miscellaneous.


 


20.1         This Agreement shall have a term
of thirty (30) years.  Not later than the
twenty-ninth (29th) anniversary of the date hereof, the parties hereto shall
commence negotiations in good faith and with reasonable diligence to replace
this Agreement with a further agreement or agreements on the subjects set forth
herein.


 


20.2         Minnesota law governs this
Agreement.


 


20.3         This Agreement shall bind and
apply to the respective parties hereto and to their successors and permitted
assigns.


 


20.4         This Agreement sets forth the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes any and all prior negotiations, understandings and
agreements, oral or written, including the Repayment Agreement; provided,
however, that the provisions of Section 3 of the Repayment Agreement shall
survive and remain in full force and effect.


 


20.5         The headings in this Agreement
are for the convenience of the parties and shall not constitute a part of this
Agreement.


 


20.6         This Agreement may be executed
in counterparts.


 


10
















 


IN WITNESS WHEREOF,
the parties have executed this Industrial Water Supply Treatment Agreement as
of the day and year first above-written.


 


	
   

  	
  CITY OF HERON
  LAKE, MINNESOTA, a

  Minnesota municipal corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John Hay

  
	
   

  	
  Its

  	
  Mayor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Judy
  Haberman

  
	
   

  	
  Its

  	
  City Clerk

  



 


 


Industrial Water Supply
Treatment Agreement.


 


11

















 


	
   

  	
  COUNTY OF
  JACKSON, MINNESOTA, a

  Minnesota municipal corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Roger V.
  Ringkob

  
	
   

  	
  Its

  	
  Chair of County
  Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  And by

  	
  /s/ Janice
  Fransen

  
	
   

  	
  Its

  	
  County
  Coordinator

  
	
   

  	
   

  	
   

  
	
   

  	
  Approved as to
  form and content:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert C.
  O’Connor

  
	
   

  	
   

  	
  County Attorney

  
				



 


 


Industrial Water Supply
Treatment Agreement.


 


12

















 


	
   

  	
  HERON LAKE
  BIOENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert J.
  Ferguson

  
	
   

  	
  Its

  	
  President

  



 


 


Industrial Water Supply
Treatment Agreement.


 


13

















 


EXHIBIT
A


 


Water Treatment Plant
Property


 


A-1

















 


EXHIBIT
B


 


WELL PROPERTY


 


That part of the
Southwest Quarter (SWl/4) (i.e. also being known as part of Lot 5, State
Subdivision of the SW1/4 16-104-37), of Section Sixteen (16), Township One
Hundred Four (104) North, Range Thirty-seven (37) West, Jackson County,
Minnesota, described as follows:  Commencing
at an existing iron monument at the southwest corner of the SW1/4 of said Section 16;
thence north 00 degrees 37 minutes 05 seconds east, bearings based on Jackson
County Coordinate System, along the west line of said SWl/4, a distance of
869.00 feet to the POINT OF BEGINNING; thence continuing north 00 degrees 37
minutes 05 seconds east, along said west line, a distance of 400.00 feet;
thence north 89 degrees 22 minutes 55 seconds east a distance of 412.00 feet;
thence south 00 degrees 37 minutes 05 seconds west, parallel with the west line
of said SW1/4, a distance of 400.00 feet; thence north 89 degrees 22 minutes 55
seconds west a distance of 412.00 feet to the point of beginning, containing
3.78 acres.


 


B-1

















 


EXHIBIT
C


 


Bonds


Use of Proceeds and
Repayment Schedule


 


	
  Uses of
  Funds

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Construction &
  Engineering

  	
   

  	
   

  	
   

  	
  3,891,392

  	
   

  
	
  Land Acquisition

  	
   

  	
   

  	
   

  	
  310,000

  	
   

  
	
  Contingency

  	
   

  	
   

  	
   

  	
  155,997

  	
   

  
	
  Total
  Project Costs

  	
   

  	
   

  	
   

  	
  4,357,389

  	
   

  
	
  Underwriter’s
  Discount Allowance

  	
   

  	
  1.2500

  	
  %

  	
  44,375

  	
   

  
	
  Fiscal Fee

  	
   

  	
   

  	
   

  	
  13,000

  	
   

  
	
  Bond Counsel

  	
   

  	
   

  	
   

  	
  10,000

  	
   

  
	
  Pay
  Agent/Registrar

  	
   

  	
   

  	
   

  	
  500

  	
   

  
	
  Printing &
  Misc

  	
   

  	
   

  	
   

  	
  1,000

  	
   

  
	
  Rating Agency
  Fee

  	
   

  	
   

  	
   

  	
  6,500

  	
   

  
	
  Capitalized
  Interest

  	
   

  	
   

  	
   

  	
  137,300

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  4,570,064

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sources
  of Funds

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bond Issue

  	
   

  	
   

  	
   

  	
  3,550,000

  	
   

  
	
  Grant/Loan

  	
   

  	
   

  	
   

  	
  1,000,000

  	
   

  
	
  Construction
  Fund Earnings

  	
   

  	
   

  	
   

  	
  20,064

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  4,570,064

  	
   

  



 


	
  David Drown and
  Associates, Inc.

  	
   

  	
  Exhibit 1

  



 


C-1

















 


EXHIBIT
D


 


Water Treatment Plant
Development Costs


 


Cost Pro Forma with
Sources and Uses


 


Jackson County/Heron Lake,
Minnesota


Water Treatment Plant Project


 




	
  Base Bid

  	
   

  	
  $

  	
  2,759,900.00

  	
   

  
	
  Engineering

  	
   

  	
  $

  	
  245,000.00

  	
   

  
	
  Base Bid
  Contingency

  	
   

  	
  $

  	
  88,497.00

  	
   

  
	
  Land Acquisition

  	
   

  	
  $

  	
  310,000.00

  	
   

  
	
  Change Order #1

  	
   

  	
  $

  	
  211,492.00

  	
   

  
	
  Lime &
  Soda Project

  	
   

  	
  $

  	
  675,000.00

  	
   

  
	
  Lime &
  Soda Contingency

  	
   

  	
  $

  	
  67,500.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  TOTAL:

  	
   

  	
  $

  	
  4,357,389.00

  	
   

  






 


D-1

















 


EXHIBIT
E


 


Water Treatment Plant
Plans and Specifications


 


and Standards


 


E-1

















 


REPAYMENT
AGREEMENT


 


This Agreement is entered
into as of this 4th day of April, 2006, by and among the City of Heron Lake,
Minnesota (the “City”), the County of Jackson, Minnesota (the “County”, and
jointly with the City the “Municipalities”), and Heron Lake BioEnergy, LLC (the
“Company”).


 


WITNESSETH:


 


WHEREAS, the Company is
currently constructing an ethanol production facility in the City of Heron
Lake, Minnesota (the “Facility”), which will be owned and operated by the
Company; and


 


WHEREAS, operation of the
Facility requires approximately 1400 gallons of treated water per day, which
the Company will obtain from a well located in the City’s limits and owned by
the City; and


 


WHEREAS, the Company is
the successor to Generation II Ethanol, LLC, and has entered into a contract
with the City, County and Minnesota Soybean Processors relating to the water
from that well; and


 


WHEREAS, the Company has
requested that the Municipalities construct a water treatment plant in or near
the City (the “Water Treatment Plant”) and associated facilities sufficient to
treat water from such well for delivery to the Facility in accordance with the
specifications developed by the Company, the cost of which would be paid from
bonds issued by the County and the debt service payments on which bonds would
be made from payments received by the Municipalities (1) from the Company
under a long-term water treatment agreement and (2) from costs assessed by
the City against the Facility; and


 


WHEREAS, the
Municipalities are currently considering this request and are holding various
discussions with representatives of the Company about various aspects of the
project; and


 


WHEREAS, the Company
desires that construction of the Water Treatment Plant commence immediately in
order to ‘obtain the necessary supply of treated water to commence operation of
the Facility on its desired timetable; and


 


WHEREAS, the City has put
out for bid, in compliance with applicable public bidding requirements, the
contract for construction of the Water Treatment Plant (the “Water Treatment
Plant Construction Contract”), and the City wishes to accept the bid of
                                          
(the “Water Treatment Plant Contractor”); and


 


WHEREAS, in order to
induce the City to enter into the Water Treatment Plant Construction Contract
and the City and County to enter into a Joint powers agreement for the Water
Treatment Plant, the Company has agreed to make all payments required under the
Water Treatment Plant Construction Contract and to make any additional payments
required to construct the Water Treatment Plant in compliance with all
applicable laws, rules, regulations, licenses and permits, if the City, County
and Company fail to reach agreement for the long term operation and maintenance
of the Water Treatment Plant and supply of treated water; and


 


1

















 


WHEREAS, the parties are
entering into this Agreement in order to memorialize their understanding with
respect to the above described matters:


 


NOW, THEREFORE, in
consideration of the foregoing premises, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, it
is hereby agreed as follows:


 


1.             The
Company agrees to unconditionally and promptly pay: (a) all amounts which
the City or County is required to pay under the Water Treatment Plant
Construction Contract; and (b) all additional amounts which the City,
County and Water Treatment Plant Contractor mutually agree (regardless of
whether a change order to the Water Treatment Plant Construction Contract has
been executed) are required to construct the Water Treatment Plant in
compliance with all applicable laws, rules, regulations, licenses and
permits.  Such payments shall be made
directly to the City or as directed, in writing, by the City.


 


2.             The
Company further agrees to cause a qualified representative of the Company to
actively monitor the construction of the Water Treatment Plant in order to
determine that the Water Treatment Plant is being constructed in accordance
with the Water Treatment Plant Construction Contract, and in accordance with
all laws, rules, regulations, licenses and permits.


 


3.             The
Company hereby represents and warrants to the Municipalities that: (a) it
has obtained all necessary studies of the capacity, quality, cost of
construction, cost of operation and maintenance and durability of the Water
Treatment Plant that the Company desires; (b) this Agreement has been duly
and validly authorized and executed by the Company; (c) this Agreement
does not violate any provision of the Company’s articles, bylaws, or any other
document, instrument or agreement applicable to the Company or its property;
and (d) this Agreement is fully enforceable against the Company in
accordance with its terms.


 


4.             The
Company acknowledges and agrees that the Municipalities have made no
representations or warranties of any type or kind: (a) that the Water
Treatment Plant can be constructed in accordance with applicable laws, rules,
regulations, licenses and permits; (b) that the Water Treatment Plant
Construction Contract and the Water Treatment Plant Contractor are sufficient
and capable to construct the Water Treatment Plant to meet the needs of the
Company; (c) with respect to costs of construction, operation, maintenance
and replacement of the Water Treatment Plant; or (d) that the Water
Treatment Plant or the quantity or quality of water available by operation of
the afore-described well, pump and Water Treatment Plant will meet the needs of
the Facility.


 


5.             The
Company further acknowledges and agrees that: (a) the Municipalities have
no obligation to finance construction of the afore-described well, pump and
Water Treatment Plant or provide any other assistance of any type or kind to
the Company, the project or the Water Treatment Plant; and (b) upon
construction of the Water Treatment Plant, the Municipalities have no
obligation to operate the Water Treatment Plant and make water available to the
Company without further written agreement acceptable to the Municipalities
covering rates for supply of water, repair and maintenance, and setting forth
the responsibility of the Company for all costs of operation, capital
replacement and legal compliance.


 


2

















 


6.             Concurrently
with the execution of this Agreement, the Company will provide the
Municipalities with resolutions of its governing body authorizing and approving
the execution of this Agreement, and a legal opinion of its outside legal
counsel opining as to such matters as the Municipalities and their legal
counsel shall require.


 


7.             The
payment obligations of the Company hereunder are absolute and unconditional,
and shall not be affected, excused or delayed for any reason whatsoever
including, but not limited to: (a) negligence, failure or omission by the
Municipalities or any of their employees or representatives, or (b) any
default or other failure of the Water Treatment Plant Contractor to complete
construction of the Water Treatment Plant in a timely manner or in accordance
with the requirements of the Water Treatment Plant Construction Contract or
applicable laws, rules, regulations, licenses or permits.


 


8.             This
Agreement sets forth the entire understanding of the parties with respect to
the matters covered hereby, and supersedes any and all prior or contemporaneous
discussions, negotiations or agreements. 
This Agreement can only be modified or amended, or any provision waived,
by written instrument duly executed by all parties.  Any amounts not paid when due shall bear
interest at the rate of eight percent (8%) per annum until paid.  In the event that any party is required to
commence legal action to enforce its rights under this Agreement, and in the
event that it is the prevailing party in such action, it shall be entitled to
recover its reasonable costs and expenses (including legal fees).


 


9.             When
the Company has made all the payments required by this Agreement, the City and
County shall transfer ownership of the Water Treatment Plant to the Company on
an “as is, where is” basis by quitclaim deed.


 


10.           The
parties hereto contemplate that this agreement may be terminated if they enter
into a separate later agreement for the long term operation and maintenance of
the Water Treatment Plant and for the supplying of treated water.


 


3

















 


IN WITNESS WHEREOF, the
parties have entered into this Agreement as of the date first above written.


 


	
   

  	
  COUNTY
  OF JACKSON, MINNESOTA

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Roger V.
  Ringkob

  
	
   

  	
  Its

  	
  Chair of the
  County Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  And by

  	
  /s/ Janice
  Fransen

  
	
   

  	
  Its

  	
  County
  Coordinator

  
	
   

  	
   

  	
   

  
	
   

  	
  Approved as to
  form and content:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert C.
  O’Connor

  
	
   

  	
   

  	
  County Attorney

  
				



 


 


Repayment Agreement by
and among City of Heron Lake, Minnesota, County of Jackson, Minnesota, and
Heron Lake BioEnergy, LLC.


 


4

















 


	
   

  	
  CITY OF
  HERON LAKE, MINNESOTA

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John Hay

  
	
   

  	
  Its

  	
  Mayor

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  And by

  	
  /s/ Judy
  Haberman

  
	
   

  	
  Its

  	
  Clerk-Treasurer

  
				



 


 


Repayment Agreement by
and among City of Heron Lake, Minnesota, County of Jackson, Minnesota, and
Heron Lake BioEnergy, LLC.


 


5

















 


	
   

  	
  HERON
  LAKE BIOENERGY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Robert J.
  Ferguson

  
	
   

  	
  Its

  	
  President

  



 


Repayment Agreement by
and among City of Heron Lake, Minnesota, County of Jackson, Minnesota, and
Heron Lake BioEnergy, LLC.


 


6